Republic Bag, Inc. v. Beazley Ins. Co.

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 7, 2020
• Docket: 18-56467
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION FEB 7 2020 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

REPUBLIC BAG, INC., a California No. 18-56467 Corporation; ALPHA INDUSTRIES MANAGEMENT, INC., a Florida D.C. No. Corporation, 2:18-cv-06745-R-PJW

Plaintiffs-Appellants, MEMORANDUM* v.

BEAZLEY INSURANCE COMPANY, a Connecticut Corporation; DOES, 1 through 10,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California Manuel L. Real, District Judge, Presiding

Submitted February 5, 2020** Pasadena, California

Before: THOMAS, Chief Judge, and WARDLAW and NGUYEN, Circuit Judges.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). Republic Bag, Inc. and Alpha Industries Management, Inc. (collectively,

“Appellants”) appeal the district court’s order denying their motion to remand and

granting Defendant Beazley Insurance Company’s (“Beazley”) motion to dismiss.

Because the parties are familiar with the facts, we need not recount them here. We

have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm in part and reverse in

part.

We review de novo a district court’s order denying a motion to remand for

lack of federal subject matter jurisdiction, Chapman v. Deutsche Bank Nat’l Trust

Co., 651 F.3d 1039, 1043 (9th Cir. 2011), and a district court’s order granting a

motion to dismiss, Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). All

factual allegations in the complaint are taken as true and construed in the light most

favorable to Appellants. Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir.

2001).

I

The district court did not err in denying Appellants’ motion to remand and

exercising jurisdiction over the case. 28 U.S.C. § 1332(a) allows a district court to

exercise jurisdiction in a civil case where, among other things, the amount in

controversy exceeds $75,000. In a case such as this one, where the issue is “the

2 applicability of [a party’s] liability coverage to a particular occurrence . . . , the

amount in controversy is the value of the underlying potential tort action.” Budget

Rent-A-Car, Inc. v. Higashiguchi, 109 F.3d 1471, 1473 (9th Cir. 1997). Because

Beazley removed the action to federal court on the basis of diversity jurisdiction, it

must show by a preponderance of the evidence that the value of the underlying

action (“the Cervantes lawsuit”) exceeds the jurisdictional minimum. See

Geographic Expeditions, Inc. v. Estate of Lhotka ex rel. Lhotka, 599 F.3d 1102,

1106-07 (9th Cir. 2010). As the Cervantes complaint does not allege a specific

dollar amount, Beazley can satisfy this burden using evidence outside of the

complaint. Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1117 (9th Cir. 2004).

The district court did not err in holding that Beazley showed by a

preponderance of the evidence that the value of the Cervantes lawsuit exceeds the

jurisdictional minimum. First, Beazley produced evidence of jury verdicts far

above the jurisdictional minimum in cases filed in California superior court with

similar causes of action, including a $2.3 million verdict in a case against the same

defendants alleging some of the same causes of action. The court could properly

consider those verdicts. See Kroske v. U.S. Bank Corp., 432 F.3d 976, 980 (9th

Cir. 2005). Second, the Cervantes complaint alleged, inter alia, unlawful salary

cuts beginning in 2011; denial of benefits, wages, and overtime; emotional and

3 psychological distress requiring treatment; and malice entitling the plaintiff to

punitive damages. Together, these support the conclusion that the amount in

controversy exceeds $75,000, even accounting for the insurance policy’s self-

insured retention provision. See Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d

373, 377 (9th Cir. 1997) (finding exercise of jurisdiction “supported” by complaint

allegations).

II

The district court erred in granting Beazley’s motion to dismiss on the

ground that the insurance policy’s Pending and Prior Litigation Exclusion (“the

Exclusion”) barred coverage for the Cervantes lawsuit. At the motion to dismiss

stage, all factual allegations are construed in the light most favorable to plaintiffs.

Lee, 250 F.3d at 679. Moreover, exclusionary clauses in California insurance

contracts are interpreted narrowly and against the insurer. See Cont’l Cas. Co. v.

City of Richmond, 763 F.2d 1076, 1079 (9th Cir. 1985). “An insurer may rely on

an exclusion to deny coverage only if it provides conclusive evidence

demonstrating that the exclusion applies.” Atl. Mut. Ins. Co. v. J. Lamb, Inc., 123

Cal. Rptr. 2d 256, 272 (Ct. App. 2002) (emphasis in original).

First, the Exclusion does not conclusively bar coverage for the Cervantes

lawsuit based on that suit’s connection to the Garcia action. Although some of the

4 allegations in the Cervantes complaint “aris[e] out of” or “involv[e]” the Garcia

suit, others, such as the allegations of age discrimination and failure to prevent age-

based discrimination, are unrelated. The insurance policy contains an express

allocation provision, providing for situations like this where a claim may contain

both covered and excluded matters. Interpreting the insurance policy to give effect

to the allocation provision, see ML Direct, Inc. v. TIG Specialty Ins. Co., 93 Cal.

Rptr. 2d 846, 850 (Ct. App. 2000), we conclude that while some claims in the

Cervantes lawsuit involve the Garcia action, that does not mean that coverage for

the entire lawsuit is precluded.

Second, the Exclusion does not conclusively bar coverage for the Cervantes

lawsuit based on that suit’s connection to the complaint filed with California’s

Department of Fair Employment and Housing (“DFEH”). The term “proceeding”

contained in the Exclusion is an ambiguous and “malleable” word, susceptible to

more than one reasonable interpretation. Recorder v. Comm’n on Judicial

Performance, 85 Cal. Rptr. 2d 56, 65 (Ct. App. 1999). Ambiguous words are

construed against Beazley, the insurer, to protect the insured’s reasonable

expectations of coverage. See ML Direct, 93 Cal. Rptr. 2d at 850. Thus, at this

stage, Beazley cannot conclusively show that the DFEH complaint constitutes a

“proceeding” within the meaning of the Exclusion.

5 The parties shall bear their own costs.

AFFIRMED IN PART, REVERSED IN PART.